Saturday, October 27, 2007 0 comments ++[ CLICK TO COMMENT ]++

Big Economic Events Next Week

A true value investor doesn't pay much attention to economics (that's what Buffett and others say*) but I'm not one so I pay attention to economics. Next week is shaping out to be a huge week. It might actually be the most important one for the year given the calamity over the last few months. The important ones in my eyes are the following:

  1. Oct 31 2:15 PM FOMC policy statement: The market is pricing in a cut. I sold my bonds (TLT) last week and my feeling is that a 0.25% cut is likely. However, due to a bunch of conflicting signals, it is not as clear as many think. WSJ Real Time Economics Blog has a brief overview of the different possibilities.
  2. Nov 1 8:30 AM Core PCE Inflation September: Consensus is 0.2% with last month's being 0.1%. I'm in the disinflation camp so I expect inflation to be low.
  3. Nov 1 10:00 AM ISM Index Oct: Consensus is no change from last month's 52. ISM index is one of the the most important econmic indicators. I posted a while ago about some recession indicators that John Hussman was looking at to see if we are entering a recession. At that time, everything was negative except ISM (needs to be below 50 to indicate contraction in the economy).
  4. Nov 1 10:00 AM Pending Home Sales Sep: There are a million home sales indicators and this is just another data point. Since I'm looking at house-related stocks, I pay more attention to the housing numbers these days.
  5. Nov 2 8:30 AM Nonfarm Payrolls Oct: Consensus at 90,000. Very important number for the market



We'll see how things transpire next week. For now, I'm concentrating on studying ABK. This looks like an amazing opportunity to me (not huge but seems safe). If anyone has any thoughts on ABK, post some comments (click near the end of this post).


(* Although Buffett generally ignores economics, do note that he reads trade journals and thinks of business conditions. I suspect he picks up economic conditions by sensing them from the bottom, by knowing how corporate profits are behaving, how currency fluctuations are impacting his businesses, and so forth. I personally am not a true value investor so I pay attention to economics. Although I get into trouble by thinking too much about economics (my bond and inverse TSX investments have been disasters because of it), I find that it also helps to avoid certain things. For example, a lot of value investors like Bill Miller have been seriously hurt (on paper) by the collapse in homebuilder shares. I suspect that if he had put more emphasis on economics as opposed to looking at the individual business, he would have avoided it. Homebuilders have been classic value traps over the last 3 years. They had very low P/Es, high ROE, high free cash flow, and were attractively priced relative to tangible bookvalue. But from an economic point of view, housing was a waiting disaster with people who can't afford homes somehow buying them, and young people and lower classes being totally priced out of homes.)

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